Insurer Obligated to Inform Policy Holders of Changes to Terms of Policy During Renewal
In a judgement dated 9th Dec, 2021, the Supreme Court of India, in the matter Jacob Punnen & Anr v. United India Insurance Co Ltd., held that it is the duty of the Insurer to inform the Insured of changes to the terms of policy at the stage of renewal, and failure to do so would be deficiency in service under the Consumer Protection Act, 1986.
The matter was a civil appeal which challenged the order of the NCDRC, which upheld the rejection of the Insured’s application seeking relief. The relief they sought was compensation owing to the fact that the Insurer failed to inform them, on renewal of their Mediclaim policy, that the overall limit of coverage was changed. The Appellants first secured their Mediclaim policy from the Insurer in 1982, which they then successively renewed annually by paying the appropriate premium. The last renewal, operative from 28.03.2008 to 27.03.2009, changed the overall limit of the coverage, which the Appellants learned of only when the Second Appellant had to undergo angioplasty in June (09.06.2008 to 12.06.2008),and the Insured’s claim was only partially paid by the Insurer since the renewed policy had a new clause that indicated that in respect of procedures (such as angioplasty), 70% of the policy limit could be claimed subject to an overall limit of ₹ 2,00,000/- for any one surgery or procedure, which the Insured had been kept in the dark about.
Both the District Forum and the Supreme Court’s judgements highlight the principle of ubberima fides, i.e., utmost good faith by the parties, which would obligatethe Insurer to reveal to the Insured any information that might influence their decision to renew the contract. The Supreme Court relied on United India Insurance Co. Ltd. v. M.K.J. Corpn. and Modern Insulators Ltd. v Oriental Insurance Co Ltd. to highlight this principleand its application to the Insurer: “It is the fundamental principle of insurance law that utmost good faith must be observed by the contracting parties and good faith forbids either party from nondisclosure of the facts which the parties know”. Additionally, there was no consensus ad idem on the change to the terms that placed a cap on the insurance coverage. The Insurer was under a duty to intimate the to be insured about any change in the policy terms before the renewal of the policy, as the Insurer cannot impose unilateral changes during renewal of the policyor during its currency.
The Supreme Court judgement also refers to Delhi Electric Supply Undertaking v. Basanti Devi, Life Insurance Corporation of India v Rajiv Kumar Bhaskar and Clause 3(2) of the notification issued by the Insurance Regulatory and Development Authority (IRDA) to elucidate the role of insurance agents and the liability of insurance companies in the event of failure to discharge the duties cast upon agents, and the likely vicarious responsibility or liability of the insurer, which applies to the failure to inform the Insured of relevant material information: “An insurer or its agents or other intermediatory shall provide all material information in respect of a proposed cover to the prospect to enable the prospect to decide on the best cover that would be in his or her interest”. The Supreme Court judgement further goes on to say that such a failure assumes importance even from the perspective of consumer protection law, referring to the definition of deficiency in service under Section 2(g) of the Consumer Protection Act, 1986. In this backdrop, the Supreme Court ruled that the findings of the State Commission and the NCDRC cannot be sustained and that the Insurer was clearly under a duty to inform the appellant policy holders about the limitations in the policy being renewed and the Insurer’s failure to inform the policy holders was deficiency of service.
